By Roberta Maynard. Enron's saga has investors everywhere very interested in the assets that companies keep off their balance sheets. Such arrangements, typically disclosed in the small footnotes on an income statement, have become big news for watchers of publicly held companies. Questions on the topic surfaced at several public builder presentations in March. But, in that regard, home builders have little to hide, say industry analysts.

"These are not significant instruments for home builders," notes UBS Warburg's John Stanley, a long-time industry analyst. "These are some option deals and projects with no recourse to the builders."

Indeed, recourse to the parent company is the key to whether such deals could add to a company's risk and spell financial trouble.

"There are legitimate reasons to do this, as long as you're transferring ownership to the joint venture," says Larry Seay, CFO of Arizona-based Meritage. "What Enron was doing was retaining the risks of ownership in off-balance sheet partnerships."

A joint venture could be a master planned community, for example, as long as there aren't guarantees, Seay says. "If a builder was guaranteeing those, they shouldn't be kept off the balance sheet."

In February, the Financial Accounting Standards Board (FASB) began work on a proposal to tighten standards related to accounting of off-balance sheet entities. Due out in late spring, the recommendations may include a requirement that the entity be genuinely at risk and not guaranteed by the parent company.

Will builders do anything differently as a result of Enron's woes or in anticipation of the FASB proposal?

"From our perspective, there's no change at all," says Bruce Gross, Lennar's CFO. "We enter into joint ventures in order to mitigate risk and to acquire land efficiently," he says. And in the context of Lennar's volume, those ventures represent a small percentage. Of the 23,899 homes Lennar closed last year, between 700 and 800 are joint ventures not shown on the balance sheet, says Gross. Typically, those deals are situations involving other builders or deals designed to tap another company's particular expertise such as commercial or golf course development.

To eliminate any concern about Meritage's off-balance sheet ventures, the company plans to underscore them in its documents. "What most builders will be doing is beefing up disclosure," says Seay. "We already disclose it in the numbers and amounts of lots. We'll probably put in a table to show which investments are recourse and which are non-recourse."

For builders, this is mostly land, he says, and it's very legitimate. "I don't blame people for asking, though.

BIG BUILDER Magazine, April 2002